Good financial gifts that you can give your parents

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The two things that your parents value the most are your time and their money. With depleting energy and income, it is hard for them to look for investment avenues that can maximise the returns of their retirement corpus and combat inflation. The best way to ease their concern and show your affection is to offer financial gifts or deploy strategies that can reduce their fiscal burden, optimise returns and offer safety of capital.

Buy health insuranceBuying a health cover for parents is possibly the best gift since these are expensive and it reduces their financial burden considerably. “Medical inflation in India is growing at 12-14% per annum and the cost of healthcare is increasing year-on-year. Old age demands proper medical care, which in turn requires judicious financial planning,” says Ashish Mehrotra, MD & CEO, Max Bupa Health Insurance.

Agrees Nitin Vyakaranam, Founder & CEO, ArthaYantra: “If parents cross 65 years, a medical cover can be expensive. Moreover, the cover available may not be high, could attract a co-payment option and not cover pre-existing diseases for three years.”

So what do you do? To amass around Rs 15 lakh for their medical needs, here are some options you can try.

Low basic cover with bigger top-up planYou can buy a smaller basic cover of, say, Rs 3 lakh, and supplement it with a Rs 10-15 lakh top-up plan, with a Rs 3 lakh deductible. “You curtail your spending on medical expenses to the extent that is affordable to you. The remaining expenses can be met by the top-up cover. These will also be cheaper than the standard plans because the risk for insurer begins only after a threshold has been crossed,” says Priya Sunder, Director, PeakAlpha Investment Services. For instance, a Rs 3 lakh base cover for a 60-year-old will cost Rs 15,000-20,000 a year, while a top-up plan of Rs 10 lakh, with a Rs 3 lakh deductible, will cost around Rs 10,000.

Include them in employer’s coverIf you are salaried and are covered by your employer, try to include your parents in the plan. Typically, group covers are offered at subsidised rates and, given the high premium for seniors, it will reduce your cost for insuring your parent.

Retain employer cover for parents, buy family floater for selfAnother option is to retain the employer’s cover for your parents and buy a family floater plan for yourself and your family. If your employer permits, you can even pay an extra sum and increase the plan size to suit your needs. Take Bengaluru’s Binit Kumar, 32, whose parents are 52 and 49 years old.

At a nominal cost of Rs 5,000 a year, he has increased the employer cover to Rs 10 lakh. He has also bought an independent cover of Rs 10 lakh for his parents because while “my mother is included in my employer cover, my father is not. After my dad fell ill a few times, I decided to buy a new plan for both of them”, says Kumar.

Paying your parents’ health insurance premium also reduces your own tax liability as the premium paid up to Rs 50,000 for senior citizens is available as tax deduction. “The higher deduction from this year onwards means I may increase the cover for my father in the coming years,” says Kumar.

In Pic:Binit Kumar, 32 software engineer, BengaluruGift for parents(52 & 49 yrs):Bought health insurance worth Rs 10 lakh, Annual premium Rs 12,354Why he did it:While his mother was covered by employer, father had no medical cover.“I will raise my father’s health cover as a higher tax deduction of Rs 50,000 will be available for senior’s health premium.”

Build buffer amountAnother option is to maintain a medical buffer for your parents. While you build a 3-6 month contingency corpus for yourself, add to it medical corpus for your parents, depending on the insurance that they already have. “Create a medical emergency fund of Rs 3-7 lakh and invest in a debt or liquid fund so that it matches the medical inflation on a yearly basis and covers the initial co-payments,” says Vyakaranam. Don’t keep this amount in a bank savings account, but in a short-term debt fund, which offers higher rate of interest at 6-7%.

Manage their portfolioIf your parents, like most, are risk-averse after retirement, they are likely to have their entire portfolio in debt. While certain small savings schemes are tax-efficient, the declining rates in coming years may not translate to returns that can beat inflation. So you can help your parents manage their portfolio and create the right balance of equity and debt.

“Consider dividing the portfolio into three silos: liquid funds to meet immediate liquidity needs and income for 12-18 months; debt investments to form the larger part of the portfolio; and a 10-15% exposure to equity to help beat inflation,” says Sunder. Says Vyakaranam: “Don’t completely change the debt portfolio to an equity-oriented one. Have a diversified asset allocation more specific to retirees based on risk appetite.”

Yash Khanolkar, 37, a Mumbai-based financial consultant, gifted his parents, aged 68 and 67, the benefits of equity investment after he realised the high tax that his father was incurring. “The Rs 25 lakh portfolio was spread across debt, mostly in fixed deposits and post office schemes. Since the interest income was taxable, his tax component was very high. I started small, by investing Rs 5 lakh in a liquid fund and linking it with a systematic transfer plan (STP) to an equity fund. Later, I moved to balanced funds,” says Khanolkar. Today, his dad’s portfolio comprises Rs 5 lakh in a liquid fund, which is for emergencies, and the remaining in balanced funds, with 60% in equity and 40% in debt.

The equity-debt balance can be maintained by investing in hybrid or balanced funds with asset allocation as per one’s needs and risk appetite. You can also do it by investing in diversified equity funds for the equity component, and in specific small savings schemes, such as the Senior Citizen Savings Scheme (SCSS), for the debt component.

Invest in SCSS and PMVV YojanaIn the current falling interest rate scenario, most of the favoured destinations of senior citizens for parking retirement corpus, have lost their sheen. While the interest rate of the Post Office Monthly Income Scheme has fallen to 7.3% from last year’s 7.7%, the 5-year tax-saving fixed deposit rates have come down from 7.25% to 7.08% this year. However, the SCSS is still an attractive option and makes for a good financial gift for your parents.

With 8.3% rate locked in for five years (extended to three more years), it also offers tax exemption under Section 80C, as well as liquidity with quarterly payouts. You can park up to Rs 15 lakh in investthe scheme to form the debt component of your parents’ portfolio. “The returns and safety are high and it is a good option for elders to invest in, particularly if they are in the lower tax bracket,” says Sunder.

Gift SCSS or PMVV YojanaIf investment horizon is 5-10 years, put in a portion of debt in both options since these offer high interest ratesIf your parents need a regular income, a good annuity option is the more recently launched Pradhan Mantri Vaya Vandana Yojana (PMVVY) from LIC of India. With a fixed rate of 8-8.3% (depending on whether pension is monthly or annual) locked in for 10 years, and high liquidity in the form of monthly, quarterly, half-yearly and annual pension, you can invest in it.

Besides, the maximum amount a family can invest has been raised to Rs 15 lakh from Rs 7.5 lakh last year, bringing it at par with the SCSS and you can easily split the corpus between these two schemes. The taxability of pension is a deterrent, but those in the lower tax bracket can still go for it.